Asian Development Bank at 50 and Japan’s puzzle


June 16, 2017

Asian Development Bank at 50 and Japan’s puzzle

by Dr. Titli Basu

http://www.asiaforum.org

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ADB President Takehiko Nakao

Competition for infrastructure financing is heating up in Asia. China is investing billions in mega-infrastructure projects under President Xi’s Belt and Road Initiative (BRI) as well as designing new financing mechanisms beyond the Bretton Woods institutions. Against this backdrop, the Asian Development Bank (ADB) now faces the challenge of reforming itself and remaining competitive as it commemorates its 50th anniversary.

 

In the face of growing Chinese investment, Japan has stepped up its game through Prime Minister Abe’s Extended Partnership for Quality Infrastructure and by further augmenting the ADB’s role in catering to the infrastructure appetite of emerging economies.

As the ADB debates its ‘Strategy 2030’,which will be in place by 2018, it must facilitate institutional and organisational reforms necessary to maintain its relevance. As Obama administration’s and Japan’s attempts to steer the initial debate on the AIIB failed to stop US allies from joining the China-led bank,the need to reform existing Bretton Woods institutions, including the ADB, has intensified.

The ADB remains under the control of Asia’s traditional regional actors including Japan and the United States with 15.6 percent shareholding each in 2016. There is a need to revisit this approach and create more space for emerging economies in the bank’s governance structure. China, India and Indonesia have 6.4 percent, 6.3 percent and 5.4 percent of shareholdings respectively in 2016. As the US-led international economic order has failed to reflect the shifting alignments, the ADB must grow in order to respond to the varying needs and ambitions of its developing member countries.

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While international attention was focused on Beijing’s recent Belt and Road Forum (BRF) on 14–15 May, a week earlier Japan celebrated the ADB’s 50th anniversary in Yokohama. Since infrastructure financing often translates into expanding geo-political influence, Japan has committed US$40 million over a two year period to a high-technology fund to support the application of innovative solutions throughout the project cycle of ADB-financed and administered sovereign and non-sovereign projects.The fund will be effective by July and will focus on critical areas including climate change, smart grids and renewable energy.

Two years ago, weighing the impact of the AIIB, Abe designed the Partnership for Quality Infrastructure and argued that Japan in cooperation with the ADB will provide ‘high-quality and innovative’ infrastructure and pledged US$110 billion over five years — a 30 percent increase from earlier funding. At the Yokohama meeting, Japan called for promoting infrastructure projects to be the mainstay of ADB operations and to further muster private sector financing together with public-private partnerships.

In February 2017, the ADB estimated that Asia will need US$26 trillion for infrastructure from 2016–2030.Economic rationale dictates that the ADB has enough space to operate alongside new development banks while addressing the infrastructure financing gap. ADB has adjusted with new realities and opened up to co-financing with the AIIB. The two banks signed a memorandum of understanding aimed at strengthening cooperation including co-financing in May 2016. They are co-financing the National Motorway M-4 Project in Pakistan, each financing 36.6 percent individually of the total project cost of US$273 million. ADB has approved co-financing with AIIB in Bangladesh and Myanmar.

In the run up to the BRF, ADB President Takehiko Nakao argued the merits of cooperating with the BRI design. While Japan’s national leadership refrained from attending the summit, Liberal Democratic Party (LDP) secretary general, Toshihiro Nikai and the Keidanren chief, Sadayuki Sakakibara were both present. This decision has been shaped by larger geo-political and geo-strategic variables. President Trump’s evolving Asia policy, fluidity in US–China relations and the North Korea conundrum are making Japan weigh up its options carefully.

AIIB membership has expanded since its inception. Japan has learnt it the hard way during the initial AIIB membership debate about the demerits of non-engagement and losing the opportunity to shape decisions from within. The United States and Japan are the only two G7 countries that kept out of the AIIB. At a time when BRF witnessed representation from over hundred nations and domestic debate over the AIIB is intensifying in Japan, Tokyo needs to revisit its stance on the China-led bank on one hand and drive the debate to facilitate pertinent reforms in ADB on the other.

For 50 years, the ADB has worked towards inclusive economic growth, environmental sustainability and regional integration. It’s lending focuses on infrastructure, education, environment, health, financial sector and so on. In 2016, the bank approved US$17.5 billion in financing, disbursed US$12.5 billion and attracted US$13.9 billion in co-financing. While it has fuelled Asia’s growth, garnering resources for infrastructure, poverty mitigation and supporting financial inclusion will remain ADB’s priorities.

Developing its lending capacity, the bank has merged the Asian Development Fund with the Ordinary Capital Resources. Moving ahead, ADB has agreed on a new procurement design and is firming up on delivering knowledge solutions and facilitating innovation and integration of high-level technology in projects.

The call for re-evaluating ADB’s voting rights is not new. Critics argue that present international institutions should permit space to developing nations and that failure to do so will hurt the relevance of these institutions.The emerging economies have long argued for representative governance, rationalising operations, easing the ADB’s internal processing time and encouraging public-private partnership investments. Japan must take the lead to facilitate governance reforms against the backdrop of AIIB and other new multilateral development banks. Failure to implement internal reforms will impact the ADB’s influence.

Developing Asian nations will be the beneficiaries of this race for infrastructure financing. Productive competition will diversify emerging economies’ options to choose the most favourable financing terms. Long-term, this will support the larger purpose of empowering emerging Asian economies to augment national growth and enhance Asia’s ability to compete in the global economy.

Titli Basu is an Associate Fellow at the Institute for Defence Studies and Analyses (IDSA), New Delhi.

India, Japan, and the Indo-Pacific: Breaking Out of the Middle Power Status


June 16, 2017

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Number 384 | June 15, 2017

ANALYSIS

 

India, Japan, and the Indo-Pacific: Breaking Out of the Middle Power Status

By Nidhi Prasad

A day after China launched its second aircraft carrier, the American administration under Mr. Donald J. Trump appeared jubilant about celebrating the first 100 days of its “America first” policy. Asian nations have to grapple with an uncertain security environment which lacks the structure or predictability that existed during the Cold War. They are caught between an aggressive China – their largest trading partner and their security ally or partner – and an increasingly capricious United States. Should one kowtow and shape Asia’s “common destiny” or negotiate a deal to “make America great again”? This article explains three ways in which India and Japan refuse to be caught in binary choices and are gradually creating room within which other Asian countries can  maneuver.

First, India and Japan under Prime Ministers Modi and Abe respectively, have attempted to change the geopolitical imagination of their nations. By 2014 China had announced its plans to link the Eurasian landmass and Pacific Rimland (through ports, pipelines, etc) by reviving the maritime and continental ‘Silk Road’. In 2015 India and Japan signed a joint statement to mutually work towards building peace and stability in the Indo-Pacific region within a decade. This was the first time the two nations agreed to expand the geographic scope of their strategic partnership (almost a decade after Abe first proposed it in India). Until 2014 the two nations looked for convergence in their foreign policies (‘Act East’, ‘Proactive Contribution to Peace’, ‘Make in India’, ‘Quality Infrastructure Initiative’, etc…). The United States under the Obama Administration additionally engaged in ‘burden sharing’ and institution building, as well as recognizing Indian and Japanese intentions to break out of their middle power status. It promoted India’s ‘leading power’ ambitions and supported the unprecedented changes in Japanese security legislation to make it more ‘proactive’.

Secondly, India and Japan are making attempts to transform the security order rather than being either status-quo nations or revisionist actors. The United States expects its Asian partners to balance against Chinese aggression while China’s biggest concern is a joint coalition that would resuscitate the ‘cold war mentality’ of containment. China has increasingly used its geo-economic tools punitively to target trade, tourism, and other sectors against any diplomatic disobedience. This was glaringly visible when South Korea decided to go ahead with setting up the THAAD missile defense system against Chinese wishes. Recently Beijing standardized the names of Arunchal Pradesh localities with Chinese character in retaliation against the Dalai Lama’s visit to the Indian state (which Beijing claims is part of “South Tibet”). Meanwhile, Japan has deployed its helicopter carrier Izumo to a tour through the South China Sea (where China and ASEAN countries have disputed territories). Additionally, Izumo will participate in the Indo-US-Japan Malabar exercise in the Indian Ocean in July this year. Such “resistance” by India and Japan is a sign that both nations are unwilling to be dictated to by China.

India and Japan are keen to play active roles and engage in close cooperation with all actors in their respective restive neighborhoods on issues for which China exercises influence such as the North Korean nuclear crisis or negotiations on Afghanistan. The complexity of relations further illustrates that states in this region cannot adopt simple strategies of balancing, band-wagoning, or hedging; rather, India and Japan need to present alternatives to others that are unable to afford to maneuver in the present system.

Third, India and Japan are moving beyond middle power narratives as they seek to support smaller Asian nations and provide alternatives to China’s “win-win” diplomacy that has placed nations like Sri Lanka and Cambodia in a Chinese debt-trap. In 2016 India and Japan articulated a joint “Free and Open Indo-Pacific strategy” towards achieving this goal, but have not yet spelled out any specifics. The two countries can assist with the need to fill the estimated $1.3 trillion estimated infrastructure gap in the region. China, under the pretense of connectivity and trade, is attempting to “hard-wire” geopolitical realities and Chinese influence, brush territorial disputes and disagreements under the carpet and carry out business as usual. Neither India, Japan, nor the United States were among the 28 countries that sent heads of government to China’s maiden Belt and Road Forum. Before the forum develops into an overarching platform to discuss Indo-Pacific security issues, India and Japan need to quicken the pace of infrastructure cooperation.

In order to succeed Japan and India must compete with China’s ability to mobilize resources at a fast pace and engage in robust diplomacy without threatening smaller nations or appearing interventionist. India is seeking Japan’s help to regain lost geopolitical capital in its neighborhood. Ultimately, India and Japan need to help realize the aspirations of smaller nations like Sri Lanka, Nepal, Vietnam, Pacific Island countries, and others who need economic and security assistance.

Finally, the role of the United States to project power and influence is also of great significance to Indian and Japanese strategy. Recent talks of the creation of an Asia Pacific Stability Initiative (with a fund of approximately $7.5 billion) and other diplomatic overtures hold the potential to stem the direction of the current power transition in the region. Asian nations now have to deal with an America that expects allies to do most of the heavy-lifting, and security guarantees in the future will be conditional on free and fair trade. Unlike before, it is the United States (in order to retain its dominance) that has to strengthen credibility in dealing with a new geo-strategic landscape, where intra-Asian trade is high and China is no longer shy about its hegemonic aspirations. Ultimately the United States would have to pressure China and maintain the security and stability of the region. To preclude China’s hegemony or Sino-US rapprochement, India and Japan are breaking out of their traditional roles and are willing to shoulder the responsibility of securing the Indo-Pacific region.

About the Author

Nidhi Prasad is a Researcher in the Department of International Politics at Aoyama Gakuin University in Japan. She completed her Master of Philosophy in Japanese Studies from Jawaharlal Nehru University, India. She can be reached at Nidhi29Prasad@gmail.com.

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Bilahari Kausikan: 4 Hard Truths about North Korea


May 27, 2017

Bilahari Kausikan: 4 Hard Truths about North Korea

There are no good options, only least bad ones. Unilateral US action will harm US allies in the region and permanently damage trust.

http://www.straitstimes.com/opinion/hard-truths-from-hard-nosed-diplomat-bilahari-kausikan-on-us-north-korea-policy

Veteran Singapore diplomat Bilahari Kausikan has a habit of speaking truth to power, no matter how hard the truth, or how big the power.

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Singapore’s Ambassador at Large Bilahari Kausikan at The University of Cambodia, Phnom Penh, Cambodia

In a speech reprinted in The Straits Times titled US Military Action Against Pyongyang Could Undermine Trust, he says there are no good options on North Korea, only least bad ones.

Here’s the gist of his argument in four hard truths.

1. Pyongyang is hell-bent determined to develop a long-range missile that can hit the US and no one is going to be able to stop it.

Mr Kausikan writes: “North Korea does not yet have nuclear-armed missiles capable of reaching the continental US; it has probably not yet weaponised its nuclear devices to make them deliverable by missiles. But Pyongyang is determined to acquire survivable, nuclear-armed ICBMs (intercontinental ballistic missiles)… Pyongyang will persist and it will eventually succeed – unless the US and its North-east Asian allies are willing to fight a full-scale war to stop it. I do not think they are prepared to pay the price.”

China doesn’t want war. The United States would like to stop North Korea, but its own options are limited. (See hard truth No. 2) So it’s leaning on China to do so – but China won’t lean on Pyongyang enough to make it stop. It wants Pyongyang to behave better, but won’t want to destroy the Pyongyang regime, fearing that doing so will destabilise its own society.

2. Any US military action against North Korea will come at a heavy price – Asian allies will suffer the brunt of Pyongyang’s retaliation, and trust in the US will be permanently eroded.

Japan’s Prime Minister Shinzo Abe (left) and US President Donald Trump spoke by phone on April 5, 2017 – a day after Pyongyang fired a ballistic missile into the Sea of Japan. PHOTO: AFP

He explains: “Seoul is within range of conventional artillery, and South Korea and Japan are within range of North Korea’s existing missiles. Japanese Prime Minister Shinzo Abe has warned that North Korean missiles could be armed with sarin, a nerve agent.

“Unilateral military action by Washington would thus impose serious direct risks on its allies at a time when the US itself does not yet face a direct threat. If the US acts unilaterally, it will, in effect, force its allies to immediately bear the very heavy costs of mitigating threats to itself that are still theoretical or putative as far as the US is concerned. This would cause grievous political damage and could permanently undermine trust in America well beyond North-east Asia.”

3.  The US will not sacrifice American cities to save Asian capitals, when North Korea eventually develops a missile that can hit America.

Mr Kausikan writes: “When North Korea has nuclear-capable ICBMs able to threaten the US, the question is bound to be asked – will San Francisco be sacrificed to save Tokyo? Since the answer is obviously ‘no’, Tokyo will have to seriously consider its own nuclear options.

“Japan has the capability to develop an independent nuclear deterrent very quickly and has, in fact, been quietly developing this capability – with American aid and acquiescence – for 30 years or so… The decision will be politically very difficult. But Japanese public opinion has changed very abruptly several times in modern Japanese history, and since the alternative is to accept subordination to China, I believe it is only a question of when and not whether Japan will become a nuclear-weapon state. I do not think the US is eager to see Japan become a nuclear-weapon state. Neither do I think that Japan is keen to become a nuclear-weapon state. But, for both, this will eventually be the least bad option.

“Where Japan goes, South Korea must follow since Seoul is bound to wonder whether it will be sacrificed to save Tokyo.”

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Trump’s America  threatens to go Alone on North Korea–Not possible since its arrogance of power will destabilize North East Asia and undermine regional stability..

The likely result: Japan and South Korea will move out from under the US nuclear umbrella protection and want to develop their own nuclear capabilities. A nuclear arms race may result in the region.

4. Denuclearisation is not an option. Nuclear escalation is more likely. But luckily, mutually assured destruction is not as mad as it sounds.

If regional countries become nuclear powers, will the situation become more volatile? Mr Kausikan says not necessarily.

 “A balance of mutually assured destruction in North-east Asia will not be a satisfactory situation for anyone. But it will not necessarily be unstable – in fact, it may well be more stable than the current situation – and it may be of some small consolation to Washington, Tokyo and Seoul that the implications for Beijing are somewhat worse. A balance of mutually assured destruction will freeze the status quo and is an absolute obstacle to Beijing’s goal – which is implicit in the essentially revanchist narrative of the ‘Great Rejuvenation’ of China by which the CCP (Chinese Communist Party) legitimates its rule – of recreating an East Asian order with China at its apex.”

For the full article, go to http://str.sg/46xe

Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates


May 2, 2017

Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates

by Tom Le@www.eastasiaforum.org

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For all the tough talk about going it alone if China is ‘not going to solve the problem’, Trump’s approach to North Korea is remarkably similar to every other US administration’s strategy since North Korea acquired nuclear weapons. All options have always been on the table, Trump has just been blunter about it. The dilemma the international community faces is that all options are costly.

North Korea’s weapons of mass destruction (WMD) program may be the most dangerous threat in international relations today. Since 9/11, fear of terrorist groups seeking to obtain nuclear weapons has been an ever-present concern. But North Korea is a belligerent state that already has them, posing an immediate threat of use and proliferation.

Pyongyang has shown a flagrant willingness to break international law, attack its neighbours, kidnap foreign civilians, carry out assassinations in foreign territories and threaten superpowers. Yet the international community has settled for maintaining the status quo as it has convinced itself that this is the least costly of options. Millions of North Koreans have paid for this decision with their human rights and lives.

Regional stakeholders so far have pursued two direct non-military strategies: talks and sanctions, neither of which have curtailed the WMD program or improved human rights in North Korea. Indirect approaches such as international ‘naming and shaming’ and isolation have also not had an impact.

The Six-Party Talks, first held in 2003 and discontinued in 2009 after six rounds, failed to provide a peaceful resolution to the North Korean nuclear puzzle. Renewal of talks is highly unlikely as the Trump administration has stated it is unwilling to pursue ‘20 years of a failed approach’ and North Korea seeks only bilateral talks without any preconditions. Adding to this, the current geopolitical context is not conducive to cooperation as the US–China rivalry has intensified and US–Russia relations are being scrutinised given the current FBI investigation into Russian involvement in the 2016 US presidential election.

South Korea is undergoing a leadership transition and its North Korea policy is uncertain, so it is unlikely to take the lead. Even Japan, whose Prime Minister Shinzo Abe has shown a willingness to negotiate with almost anybody and has held negotiations with North Korea on the abduction issue, is an unlikely partner. The missile test during Abe’s February US visit and subsequent united declarations that North Korea is a ’serious threat’ leaves Abe little room to pursue talks.

The Trump administration has floated the idea of tightening the screws on North Korea through additional sanctions to go along with existing ones imposed by the United States and the UN. Sanctions can be effective for sowing discontent among elites, as they may limit their ability to transfer money and travel. But sanctions are notoriously ineffective and disproportionately harm the civilians, who are themselves victims of the authoritarian regime.

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Tough talking Vice President Mike Pence–Threats won’t scare a desperate regime.

Trump would have to take a tough stance on China to fulfill his threat of wider sanctions ‘aimed at cutting North Korea off from the global financial system’ with a focus on Chinese banks. It is unlikely to eventuate given that he backed down from his One-China policy posturing. An antagonistic approach to China would also risk greater regional instability if it escalates into a trade war or affects other contentious issues.

On the other hand, 64 per cent of Americans would support the United States using military force to defend its Asian allies in the event of a serious conflict with North Korea. The United States could pursue a limited path of pre-emptive strikes targeting WMD facilities, or a more ambitious one, such as war to overthrow the Kim regime.

The less costly option of a pre-emptive strike still would not guarantee any success as it would be difficult to take out all the North Korean weapons facilities. The United States has limited knowledge of the current WMD program and facilities as there have not been inspectors in North Korea for almost a decade. A pre-emptive strike also risks a full-scale war on the Korean peninsula. North Korea has thousands of pieces of artillery aimed at Seoul and, according to some estimates, it could obliterate the city in as little as two hours.

Even if a war against North Korea is ‘successful,’ few are willing or ready to deal with the aftermath. The United States lost its taste for nation building and is unwilling to deal with state collapse after two failed efforts in the in the last 15 years. Following the collapse of the North Korean state, the region would need to aid millions of refugees, rebuild a failed state and develop and implement a unification plan in concert with South Korea.

Since 1991, South Korea has collected far short of the estimated US$500 billion needed for unification. Integration of the North Koreans would also be difficult as defectors have faced discrimination and younger South Koreans are increasingly not interested in unification at all. Questions of whether a united Korea would keep its nuclear weapons or what kind of government would follow are ones no one is ready to answer.

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War will destroy South Korea, especially Seoul

The international community has chosen to maintain the status quo because of the high costs of solutions, difficulty in finding consensus and inability to escape classic realist logic. Following the 5 April missile test, a senior White House official declared, ‘the clock has now run out and all options are on the table’ — perhaps indicating that the clock is running out for the international community as North Korea gains leverage with each passing day.

It is also important to realise that inaction means millions of North Koreans will continue to suffer under the brutal Kim regime. North Koreans are paying for their oppressive government and for an international community that has found the status quo to be more acceptable than the alternatives.

As unpalatable as it may be, the international community must accept that North Korea is a nuclear state, and open channels of negotiation with the Kim regime. The clock ran out a long time ago for millions of North Koreans. Living with failure should not be acceptable for the United States or the international community.

Tom Le is an Assistant Professor of Politics at Pomona College.

Abenomics: A Success?


May 2, 2017

Abenomics: A Success?

by The Financial Times

https://www.ft.com/content/62cc7d40-2e65-11e7-9555-23ef563ecf9a

When a policy is applied for more than four years, and consistently fails to produce the intended result, it is tempting to declare it a failure. Critics of Japan’s economic stimulus declare exactly that. They are wrong. So-called Abenomics has not failed, and it should be sustained, not abandoned.

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Critics of Prime Minister Shinzo Abe’s economic policy, which aims to combine monetary and fiscal stimulus with structural economic reforms, make a simple case. Abenomics began in the spring of 2013. It was supposed to revive growth and end two decades of on-and-off deflation. Four years later, the Bank of Japan’s preferred measure of inflation is up by 0.1 per cent on a year ago. It follows, the critics say, that the medicine has not worked.

It has indeed proved hard to ignite inflation in Japan. Since the financial crisis, low inflation has been a problem everywhere, from the US to the eurozone to the UK. But the simple diagnosis of failure ignores how much Abenomics has achieved, the difficult backdrop to these achievements, and the reality that the stimulus was much smaller than its critics imagine. Growth, running at an annualised 1.2 per cent, has been well above Japan’s underlying rate every year save 2014. The unemployment level is at a 22-year low of 2.8 per cent — and that figure understates how tight Japan’s jobs market has become. Every shop and restaurant in Tokyo seems to have a “positions vacant” sign, and many are scrapping 24-hour opening to save labour. Yamato Transport, the country’s largest logistics company, is raising prices for the first time in 27 years in a deliberate attempt to cut volumes to a level its network can handle. Rather than cutting costs, chief executives spend their time working out how to hire and retain staff.

After more than two decades when labour was cheap and abundant, Japanese companies are finding ways to cut back, reducing their lavish service standards rather than raising prices. But this can only go so far. Japan is primed for inflation. The struggles of the stimulus must also be weighed against the global economic backdrop. The plunge in 2014 in commodity prices, followed by the 2015 slowdown in emerging markets, leading to a sharp appreciation of the yen, were a terrible environment in which to generate inflation. Only with the election of Donald Trump as US president, and the subsequent rally in the yen above ¥110 to the dollar, is the global economy once again a support. Of all the obstacles to success, the worst was self-inflicted: a 2014 rise in consumption tax from 5 to 8 per cent. In theory, Abenomics involved a fiscal stimulus. In reality, this only ever happened for a brief time, in 2013. Over the past four years, Japan has significantly tightened fiscal policy. The predictable result was to halt momentum towards higher prices.

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Recently, the Abe government has realised its mistake and loosened the purse strings a little. It should continue to do so, ignoring foolish and arbitrary fiscal targets, until inflation finally does pick up. There have been policy failures over the past four years, but they all involved too little Abenomics, not too much. To break Japan’s deflationary mindset for good may take several more years. Workers are slow to demand higher pay and employers are reluctant to offer it. But that does not mean the effort to restore inflation has failed. Rather, it has made significant progress, in a difficult environment, where the policy’s champions often failed to act when needed. The prize is a revived Japanese economy.

 

America first, geo-economic logic last


April 27, 2017

America first, geo-economic logic last

by Gary Hawke, Victoria University of Wellington

http://www.eastasiaforum.org

Image result for tomahawk over syriaTrumponomics–Military Power over Geo-Economics

The Trump Administration has introduced a new set of challenges to the international economy. It has profoundly changed the role of the United States in international economic diplomacy, ceasing to be a champion of multilateralism.

Within the first 100 days of the Trump administration, reality has overwhelmed a good deal of campaign rhetoric, and individuals experienced and skilled in conventional public management have prevailed over some who epitomised revolt against elites. But ideas that challenge longstanding US positions on the world economy and international integration remain at the core of the Trump administration.

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Get the Message, Theresa May?

Bilateral trade balances have long been known to be an inappropriate policy objective. Yet the Trump administration is pursuing this without any sound argument. Its belief is that only bilaterally balanced trade (or an excess of US exports) is ‘fair trade’. This nonsense is reinforced by concentrating on trade in goods, ignoring surpluses on services trade. And the capital account is ignored entirely.

Trump expands the idea of bilateral balance to the trading relationship with every other country. He insists on what Gary Hufbauer has called ‘mirror-image reciprocity’. Every component of a deal, every individual tariff rate, any provision about rules of origin for specific products, and any condition for foreign investment must be no less favourable for US exporters than the corresponding rule applied to the United States. This is misplaced concreteness has gone mad.

The idea of a win-win overall deal is rejected. The very idea of complementarities between economies is ignored. That this is endorsed by the chair of the newly established National Trade Council Peter Navarro, who holds a Harvard PhD in economics, is a conclusive argument for an enquiry into Harvard standards.

Two of Trump’s executive orders on trade deficits and trade laws would both fail the most elementary of economics examinations.

Under the Trump Administration, history is no more respected than economics. It has been argued that the WTO and its predecessor GATT were intended to apply only to developed economies. Those who were at the Havana conference in the 1940s and those who negotiated with developing economies in the Uruguay Round saw no such belief among their US colleagues.

This is a thin disguise for wishing to continue using subterfuge rather than economic logic in consideration of so-called ‘countervailing duties’ and ‘anti-dumping penalties’ against China. The idea that there is an indisputable definition of a ‘market economy’ is absurd, but then so is the underlying idea of dumping. Artificial lowering of prices with the intention of raising them after forcing a competitor out of business should be countered — if it were ever properly detected.

Even more absurd is the notion that ‘over capacity’ is something that requires government intervention. Consumers gain from cheap products. When producers cannot sustain output levels at such low prices, the appropriate response is for the least efficient producers to exit. In the case of steel, ‘least efficient’ is probably not the same as ‘Chinese’.

Most concerning is an attack on the WTO dispute resolution system. US opposition to it predated the Trump administration. The Obama administration vetoed the reappointment of a judge to the Appellate Body for the little-disguised reason that his decisions were uncongenial.

US resistance to the dispute resolution system has never been far from the surface. It is often rationalised by a constitutional principle that only the US Congress can create laws which bind US citizens. Some US judges can nevertheless make positive use of international reasoning, and previous administrations have recognised that membership of international institutions could require them to persuade Congress to amend US law or to compensate a foreign party.

The language in the final statement of the WTO dispute resolution system is in no way an exemption of the United States from the dispute resolution system. The words of the dispute settlement understanding that a ruling can’t ‘add to or diminish the rights or obligations’ of a member country — relate to member countries’ commitments, not US law, and their interpretation is not a US prerogative.

Rhetoric about a ‘rules-based international order’ or the ‘modern liberal international order’ is now entirely empty when set beside the declared intentions of the Trump administration. Again, the problem is deeper than Trump. No country can be an effective advocate of the rule of law when its partisan politics dominates the choice of its most senior judges. Fundamentally, the United States has to adjust to no longer being able to dominate global affairs.

Economic integration now has to be led by countries other than the United States. But successful integration elsewhere will cause responses within the United States as businesses miss profitable opportunities and as voters see that they are missing out on consumption and employment gains.

Gary Hawke is retired Head of the School of Government and Professor of Economic History, Victoria University of Wellington.